Wednesday, September 25, 2013

Potential support for Treasury yields

Another important index worth monitoring in the next few weeks as we enter the potentially treacherous month of October is the 10-Year Treasury Yield Index (TNX).  Long-term Treasury yields have risen to almost 3% in recent weeks in the wake of the Fed’s public discussions about “tapering” QE3 and withdrawing stimulus.  This caused a major spike in interest rates, which in turn catalyzed a slump in mortgage and home buying activity recently.  A lot is riding on the bond market and the economy can ill afford another major interest rate spike. 

The run-up in the 10-year yield index is one reason why the Fed decided to hold off on tapering QE at its latest policy meeting.  The cat is out of the bag, however, and investors are still fretting about the coming end of easy money and artificially low interest rates.  (This is one reason why the stock market didn’t follow through with last week’s post-FOMC rally, but instead has spent the last three trading sessions giving back all the previous gains from the Fed meeting day).

Let’s watch for potential support in the coming days as TNX approaches the 25.50-26.00 area (below).  The technically important 90-day moving average intersects this area and looks like it could provide support should TNX drop to this area.  A lateral trading band with parameters at roughly the 25.50-26.00 area on the low end and 29.50-30.00 on the high end is a strong possibility in the coming weeks.  [Excerpted from the Sept. 23 issue of Momentum Strategies Report]